Sunday, October 19, 2008

Obama's Health Care Plan

Now consider the Obama health plan. A major element of the plan is an extra payroll tax on firms that do not give their workers health insurance. By the basic theory of tax incidence, this is equivalent to a tax on workers without insurance.

In other words, the Obama plan is much the same as imposing a health insurance mandate, backed up by the penalty of a tax surcharge on your earnings if you fail to have coverage.

One difference: If an individual buys his own health policy, rather than getting it through his employer, he still pays the tax. That is, the Obama policy continues, even reinforces, a strong policy-induced preference for employer-provided over individually-purchased health insurance.

The post goes on to say that McCain's plan is attempting to partially sever the link between where one works and their health insurance. We should change the economic incentives of health insurance so that one's employer has less to do with an employee's health insurance.